Happy Sunday! I've been reading the Psychology of Money by Morgan Housel so this episode is going to revolve exclusively on this topic. It puts into perspective some ways we behave with money.

Alrighty, on to the Stir!

The World of Compounding

Warren Buffet (91 years old) is the 6th richest person in the world worth a whopping 101.1 billion USD. How did he become so wealthy? He started early.

More than 2,000 books are dedicated to how Warren Buffett built his fortune. Many of them are wonderful. But few pay enough attention to the simplest fact: Buffett's fortune isn't due to just being a good investor, but being a good investor since he was literally a child.

The real key to his success is that he's been a phenomenal investor for three quarters of a century. Had he started investing in his 30s and retired in his 60s, few people would have ever heard of him. Buffet began serious investing when he was 10 years old. By the time he was 30 he had a net worth of $1 million, or $9.3 million adjusted for inflation.

Effectively all of Warren Buffett's financial success can be tied to the financial base he built in his pubescent years and the longevity he maintained in his geriatric years. His skill is investing, but his secret is time.

What's the takeaway? Compounding doesn't rely on earning huge returns. Get some decent returns on your money now and do that for a long period of time. That'll make all the difference.

The World of What Wealth Looks Like

Wealth is what you don't see. Spending money to show people how much money you have is the fastest way to have less money.

We tend to judge wealth by what we see, because that's the information we have in front of us. We can't see people's bank accounts or brokerage statements. So we rely on outward appearances to gauge financial success. Cars. Homes. Instagram photos. Wealth is financial assets that haven't yet been converted into the stuff you see. That's not how we think about wealth, because you can't contextualize what you can't see.

We should be careful to define the difference between wealthy and rich. Rich is current income. Someone driving a $100,000 car is almost certainly rich, because even if they purchased the car with debt you need a certain level of income to afford the monthly payment. Same with those who live in big homes. It's not hard to spot rich people. They often go out of their way to make themselves known. But wealth is hidden. It's income not spent. Wealth is an option not yet taken to buy something later. Its value lies in offering you options, flexibility, and growth to one day purchase more stuff than you could right now.

It is so ingrained in us that to have money is to spend money that we don't get to see the restraint it takes to actually be wealthy. And since we can't see it, it's hard to learn about it.

The world is filled with people who look modest but are actually wealthy and people who look rich who live at the razor's edge of insolvency. Keep this in mind when quickly judging others' success and setting your own goals.

The World of Wisdom

People follow those who know where they are going, so cultivate an air of certainty and boldness.

End Note

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Live free,

Brennen